The Guidelines' Approach to Antitrust Analysis and Market Definition

• Pages: 31-71

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CHAPTER IV

THE GUIDELINES’ APPROACH TO ANTITRUST

ANALYSIS AND MARKET DEFINITION

A. The General Approach

In the case of horizontal agreements, the analytical framework of the

Guidelines seeks to determine whether the license will diminish

competition that likely would have taken place in a relevant market in the

absence of the license. Situations that potentially fall within this

category include: (1) lic enses that transfer the exclusive right to practice

an invention to a competitor in a concentrated market; (2) agreements

among competitors to adhere to fields of use not only with respect to the

licensed technology but with respect to comparable technologies as well;

or (3) arrangements that effectively merge the research and development

(R&D) activities of two of only a few entities that seem likely to be

capable of engaging in comparable R&D activity. The horizontal

analysis is notable for its focus on the actual net effect of the license on

competition. The agencies will not challenge a license as “too

restrictive” unless the restrictions will eliminate competition that would

otherwise have ta ken place.

1

Moreover, t he agencies will not seek to

require the owner of intellectual property to create competition for its

own technology.

2

In the case of vertical agreements, the focus is on diminished

competition between the licensor or licensee and its horizontal

competitors t hrough either tacit agreement made possible by the

licensing arrangement or foreclosure of rivals’ access to key sources of

supply or distribution.

3

Possible examples include restrictions on

licensee’s use of goods not covered by the licensed intellectual property,

penalties on l icensee’s use of substitutes for the licensed technology,

4

1. See U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for

the Licensing of Intellectual Property § 4.1.2 (1995 ) [hereinafter

INTELLECTUAL PROPERTY GUIDELINES or GUIDELINES], reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,132 and Appendix A to thi s book.

2. Id. § 3.1.

3. See id. §§ 3.1, 4.1.1, 4.1.2, 5.3-5.5.

4. The first two examples are sometimes referred to as “tie-out” provisions.

32 Intellectual Property Guidelines Origins and Ap plications

and exclusive dealing requirements imposed by a dominant firm that

effectively foreclose the licensor’s rivals from reasonable access to vital

resources. This renewed attention to vertical foreclosure effects, the

heart of t he practices challenged in the Microsoft proceedings,

5

contrasts

with experience under the 1988 International Guidelines, which seldom

triggered enforcement efforts.

6

B. Markets Affected by Intellectual Property Licensing

As in any other area of antitrust analysis, intellectual property

transactions are evaluated in ter ms of their impact on markets. Yet,

whereas antitrust analysis usually focuses on competition in markets for

goods or services, the analysis of intellectual property licenses under the

Guidelines may focus on three distinct types of markets, sometimes with

respect to the same transaction: (1) goods and services markets—the

markets for goods or services traditionally analyzed in antitrust

proceedings; (2) technology markets—the (sometimes hypothetical)

markets for the transfer or use of technology; and (3) the controversial

concept of innovation markets—markets consisting of alternative sources

of R&D.

7

T hese markets are also the focus of the Antitrust Guidelines

for Collaborations Among Competitors, issued by the agencies in 2000.

8

1.

Goods Markets (§ 3.2.1)

A licensing arrangement may affect competition in the sale of goods,

as in the case of a license limiting the licensee’s ability to sell goods to

specific territories or fields of use.

9

In United States v. S.C. Johnson &

5. United States v. Microsoft Corp., 56 F.3d 1448 , 1451-52 (D.C. Cir.

1995); United States v. Microsoft Corp., 253 F. 3d 34 (D.C. Cir. 2001) (e n

banc) (per curiam).

6. See Robert P. Taylor, Pilkington, Microsoft and S.C. Johnson Signa l a

Policy Shift at DOJ, ANTITRUST (Fall 1994). See Chapter IV.D.2 for a

discussion of the details of the agencies’ analytical appro ach.

7. Intellectual Property Guidelines § 3.2.

8. See U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for

Collaborations Among Competitors § 3.32 (Apr. 2000) [hereinafter 2000

COLLABORATION GUIDELINES], reprinted in 4 Trade Reg. Rep. (CCH)

¶ 13, 161.

9. See United States v. Studiengesellschaft Kohle, m.b .H., 670 F.2d

1122, 1136 (D.C. Cir. 1981).

Special Issues Associated With Standard-Setting Organizations 33

Son,

10

for example, the Antitrust Division of the U.S. Department of

Justice (DOJ or the Division) alleged that Bayer A.G., a potential entrant

into the household insecticide market, granted a license to S.C. Johnson

& Son, the firm with a 45 to 60 percent market share, and, as a result of

the arrangement, canceled its own plans to enter that market. In addition,

Bayer agreed to refrain from licensing J ohnson’s competitors. The

alleged de facto exclusive license to Johnson thus thwarted potential

entry into the goods market for household insecticides.

The Gui delines also articulate antitrust concerns with the impact of

licensing on complementary goods markets. The Guidelines indicate that

the agencies will analyze the effects of a license arrangement on

competition in markets for goods used in conjunction with the licensed

intellectual property as inputs to produce other goods.

11

In Silicon

Graphics, Inc.,

12

for example, the Federal Trade Commission (FTC or

the Commission) conditioned a computer workstation manufacturer’s

acquisition of two software developers on making the software

developed by one of the acquired developers usable by a competing

workstation manufacturer. The FTC alleged that the acquired developer

had plans for such “porting” prior to the acquisition and that the

acquisition could foreclose competing workstation manufacturers from

independent sources of software.

When the agencies analyze the impact of a licensing arrangement on

goods or services markets, they apply the relevant market definition and

measurement standards of Section 1 of the 1992 Horizontal M erger

Guidelines.

13

2.

Technology Markets (§ 3.2.2)

The Gui delines state that the agencies may anal yze the impact of a

transaction on technology markets when rights to intellectual property

are marketed separately from the products in which they are used. The

pharmaceutical industry provides one example of a technology market

separate from a goods market. Var ious firms develop different

10. 1995-1 Trade Cas. (CCH) ¶ 70,884 (N.D. Ill. 19 94).

11. Intellectual Property Guidelines § 3.2.1.

12. [FTC Complaints & Orders Transfer Binder, 19 93-1997] Trade Reg. Rep.

(CCH) ¶ 23,838 (Nov. 14, 1995).

13. See U.S. Dep’t of Justice & Fed. Trade Comm’n, Hor izontal Merger

Guidelines (1992) [hereinafter 1992 HORIZONTAL MERGER GUIDELINES],

reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.